Record Companies File Legal Proceedings Against VKontakte For Deliberately Facilitating Piracy On A Large Scale

Legal proceedings have been filed by the recording industry against vKontakte (VK), the Russian social network that operates a music service deliberately facilitating copyright piracy on a large scale.

The action is taken to protect the rights of record companies investing in Russia and to help develop a thriving licensed music business. The litigation comes after months of preparation, during which repeated attempts have been made to persuade VK to tackle its copyright infringements.

The claims, filed in the Saint Petersburg & Leningradsky Region Arbitration Court, charge VK with creating a service aimed at large-scale infringement of the rights of copyright holders. The company operates an unlicensed music service involving a huge library of copyright-infringing tracks that are stored on its website. The service provides unlimited access to this repertoire, enabling its tens of millions of users to search and stream music.

Three separate cases have been filed by three record companies: Sony Music Russia, Universal Music Russia & Warner Music UK. The actions are supported by the organisation representing record labels in Russia, the National Federation of the Music Industry (NFMI), and coordinated by IFPI, the organisation representing the recording industry worldwide.

The cases involve a sample of artists, for which the recording industry seeks court orders requiring VK to remove the infringing repertoire from its service. The record companies also seek a court order requiring VK to implement effective industry-standard measures, such as audio fingerprinting, to prevent unauthorised re-upload of that specific repertoire and to prevent unauthorised uploading of the companies' catalogues generally. The legal action also includes a claim for compensation of just over RUB 50 million (US$1.4 million) in respect of the infringing repertoire.

IFPI Chief Executive Frances Moore said "For the music industry to grow and prosper, it needs digital partners that are licensed, that respect copyright and which pay artists and producers for their work and investment. VK's music service, unlike others in Russia, is an unlicensed file-sharing service that is designed for copyright infringement on a large scale.

"We have repeatedly highlighted this problem over a long period of time. We have encouraged VK to cease its infringements and negotiate with record companies to become a licensed service. To date the company has taken no meaningful steps to tackle the problem, so today legal proceedings are being commenced."

Leonid Agronov, CEO of NFMI, said: "Music companies in Russia need a secure environment where they can invest in artists, offer new music to consumers and develop a viable business. Today this is extremely difficult due to the unlicensed service of vKontakte, which is earning revenues from music without respecting the rights of those who created and produced it. This is why NFMI has supported the efforts of the international industry to persuade vKontakte to stop its infringements and why we support the legal proceedings filed today. This is an action which can benefit the whole music industry in Russia, and an opportunity to improve the business environment for those who depend on copyright and other rights for their livelihood."

VK is the most popular social network in Russia, with more than 88 million registered users from Russia and 143 million worldwide. Its music service has a vast amount of infringing material stored on its music service, with thousands of copies of most of the tracks in the Russian and US Top 20 Charts. The social network generates revenue from targeted advertising, and the company is reported to have made USD $172 million in revenue in 2012. VK has never paid the claimant companies for the use of their recordings.
Developing a licensed music business in Russia

Record companies are committed to developing a thriving licensed music business by making music available to consumers via different licensed channels and formats. A number of digital music services are licensed in Russia: consumers can choose from free, ad-supported, subscription and download services, including Yandex, Trava and several mobile operators, as well as global music brands iTunes and Deezer.

However, despite its potential to be a top 10 world market, the licensed Russian digital music business remains marginal, ranking the country outside the top 20 among music markets internationally.

As the largest social network in Russia, vKontakte's unlicensed service is a significant factor in this under-performance. Russian recorded music revenues in 2013 totalled RUB 2.2 billion (US$69.4 million). By contrast, record companies globally have developed a fast-growing digital music business worth US$5.9 billion globally, licensing hundreds of digital partners in over 100 countries, ranging from paid-for downloads to free streaming services.
"Notorious" market for fourth year running

There has been extensive public comment and media coverage, in Russia and internationally, about VK's record on copyright infringement. In February 2014, the US Trade Representative's annual report listing "notorious markets" for piracy named VK for the fourth year running.